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WSC/2005 LLC v. Trio Ventures Associates

Court of Appeals of Maryland

July 30, 2018

WSC/2005 LLC, et al.
v.
TRIO VENTURES ASSOCIATES, et al.

          Circuit Court for Montgomery County Case No.: 414402V

          Barbera, C.J., Greene, Adkins, McDonald, Watts, Hotten, Getty, JJ.

          OPINION

          ADKINS, J.

         Arbitration is a procedure frequently imposed by contract but seldom the topic of Maryland appellate decisions. In this appeal, we determine whether a court may vacate an arbitrator's decision for manifest disregard of applicable law even though such a ground is not listed in the Md. Code (1973, 2013 Repl. Vol.), § 3-224(b) of the Court and Judicial Proceedings Article ("CJP"). Applying this standard, along with the express statutory grounds to vacate arbitral awards, we then consider whether a circuit court erred in refusing to vacate the award in question.

         BACKGROUND

         This commercial dispute centers on real properties located in Montgomery County, Maryland. The Washington Science Center Joint Venture ("WSCJV") owns land and commercial buildings on Executive Boulevard in Rockville, Maryland. Although the WSCJV owns several properties, only two are relevant to this appeal: 6100 Executive Boulevard and 6011 Executive Boulevard. Respondents Trio Venture Associates, Myron Levin, Jean Levin, Lawrence Guss, and the Guss Family Limited Partnership (collectively "Trio") owned 58 1/3% of the WSCJV.

         In 2005, Trio and the remaining joint venturers were embroiled in contentious litigation stemming from Trio's attempted sale of its ownership interest. During this litigation, the parties reached a settlement. As part of the settlement, Trio sold its ownership interest to Petitioners WSC/2005 LLC, and Simon and Ruth Wagman (collectively "WSC").

         The parties set out the terms of this transfer in a Purchase and Sale Agreement ("PSA"). The PSA provided several detailed provisions regarding the price WSC would pay for Trio's ownership interest. Paragraphs 3.A-3.C required an initial payment of $10 million from WSC to Trio. Paragraph 3.E also required WSC to pay an additional $3.5 million if one of two things happened. First, the payment was required if the government tenants at 6011 or 6100 Executive Boulevard renewed their leases for at least ten years. Second, payment was required if, in the event that the government tenants did not renew, both 6011 and 6100 Executive Boulevard, "in the aggregate are not less than seventy-five percent (75%) leased to and occupied by tenants for terms of not less than five (5) years in each case (excluding options) . . . ." This paragraph also provided that it was "understood that WSCJV [would] use commercially reasonable efforts to obtain renewal leases on terms and conditions acceptable to WSCJV as soon as is practical."

         The parties signed the PSA on August 17, 2005. One year later, WSC sold 6100 Executive Boulevard to a third party. Trio maintains that it did not receive notification of the sale. In 2010, Trio, still unaware that the property had been sold, sent an e-mail to WSC asking about the leasing status at both 6100 and 6011 Executive Boulevard. A representative from WSC responded by explaining that the government leases-which were in place when the property transferred from Trio to WSC-did not expire until 2014. The message indicated that the earliest time the payment under Paragraph 3.E would be due was 2014. According to Trio, it then ran a title search on 6011 Executive Boulevard in January of 2014, which revealed that WSC had sold the building. This discovery led to the dispute giving rise to this appeal.

         Trio sent WSC a letter asserting that WSC had an obligation to lease 6100 Executive Boulevard and that Trio was misled into thinking that WSC remained the owner. The letter argued that "the sale of [6100 Executive Boulevard] triggered the payment due under Paragraph 3.E [of the PSA]." After WSC refused to acknowledge any right to additional payment stemming from the sale of 6100 Executive Boulevard, Trio filed a demand for arbitration. The demand asserted five claims stemming from WSC's sale of the property: (1) payment due under terms of purchase and sale agreement; (2) payment due as a result of fraudulent contract performance; (3) payment due for failure to comply with commercially reasonable standards requirement; (4) payment due as a result of unjust enrichment; and (5) failure to provide information. WSC moved to dismiss the demand and argued that the PSA did not require an additional payment under Paragraph 3.E until the leasing condition occurred. According to WSC, the "leasing contingency" only required payment when the leases at the buildings were renewed, or if they were re-leased at certain thresholds.

         Trio moved for summary judgment, arguing that the sale deliberately frustrated and destroyed any possibility that WSC could fulfill the leasing contingency. After a hearing on the motions, the Arbitrator issued an opinion dismissing some of Trio's claims, [1] but granting Trio's motion for summary judgment on the issue of whether WSC breached the PSA by selling 6100 Executive Boulevard. The Arbitrator concluded that the sale of 6100 Executive Boulevard breached the PSA and required WSC to pay Trio the $3.5 million fee specified in Paragraph 3.E. We shall discuss the reasoning of the Arbitrator's decision in more detail infra.

         Shortly thereafter, WSC filed a petition to vacate the arbitration award in the Circuit Court for Montgomery County pursuant to CJP § 3-224. The petition argued that the Arbitrator "manifestly disregarded well-established Maryland law in several significant respects," and that the Arbitrator wrongly concluded that WSC breached the PSA by selling 6100 Executive Boulevard. Trio moved to dismiss the petition, arguing that WSC had not alleged any of the statutorily permitted vacatur grounds enumerated at CJP § 3-244(b). Trio also filed a request, pursuant to CJP § 3-228(a)(2), for the attorney's fees and costs incurred in defending and enforcing the arbitration award in the Circuit Court. After a hearing, the Circuit Court dismissed the petition. The order stated that the arbitration award did "not manifestly disregard applicable law" but denied Trio's request for attorney's fees and costs.

         WSC filed a timely appeal in the Court of Special Appeals. The intermediate appellate court, in an unreported decision, affirmed the Circuit Court's order. WSC/2005 LLC v. Trio Venture Assocs., Nos. 946, 1531 & 1784, 2017 WL 4422973, at *7 (Md. Ct. Spec. App. Oct. 5, 2017). The Court concluded that "the [A]rbitrator's award is fully supported by the language in the PSA and in accordance with applicable law." Id.

         We issued a writ of certiorari to answer the following questions:[2]

(1) May an arbitral award be set aside for manifest disregard of applicable law according to the MUAA?
(2) Did the arbitration award manifestly disregard applicable law?
(3) Does a circuit court have discretion to deny a request made, pursuant to CJP § 3-228(a)(2), for an award of the attorney's fees and costs incurred in defending or enforcing the arbitration award?

         We hold that the MUAA does permit a party to challenge an arbitration award for manifest disregard of the law. According to this standard though, the Circuit Court correctly concluded that the Arbitrator's award did not manifestly disregard the law. We also hold that a circuit court has discretion to award or deny attorney's fees to a party seeking to vacate or confirm an arbitration award.

         DISCUSSION

         The MUAA is a comprehensive statute governing the arbitration process in Maryland. CJP §§ 3-201, et seq.; Walther v. Sovereign Bank, 386 Md. 412, 423-24 (2005). Once the arbitrator issues an award, the MUAA-CJP § 3-224(b) specifically-provides certain grounds upon which a circuit court shall vacate an award:

(b) Grounds. - The court shall vacate an award if:
(1) An award was procured by corruption, fraud, or other undue means;
(2) There was evident partiality by an arbitrator appointed as a neutral, corruption in any arbitrator, or misconduct prejudicing the rights of any party;
(3) The arbitrators exceeded their powers;
(4) The arbitrators refused to postpone the hearing upon sufficient cause being shown for the postponement, refused to hear evidence material to the controversy, or otherwise so conducted the hearing, contrary to the provisions of § 3-213 of this subtitle, as to prejudice substantially the rights of a party; or
(5) There was no arbitration agreement as described in § 3-206 of this subtitle, the issue was not adversely determined in proceedings under § 3-208 of this subtitle, and the party did not participate in the arbitration hearing without raising the objection.

         Subsection (c) further provides that "[t]he court shall not vacate the award or refuse to confirm the award on the ground that a court of law or equity could not or would not grant the same relief." (Emphasis added).

         A circuit court's decision to grant or deny a petition to vacate or confirm an arbitration award is a conclusion of law, which we review without deference. See, e.g., Prince George's Cty. Police Civilian Emps. Ass'n v. Prince George's Cty., 447 Md. 180, 192 (2016) ("An appellate court reviews without deference a trial court's ruling on a petition to vacate an arbitration award."). The parties agree on this point but dispute the appropriate standard upon which a court must evaluate the Arbitrator's award.

         WSC maintains that the vacatur grounds set forth in CJP § 3-224(b) are not exclusive. Specifically, WSC argues that, in addition to the grounds set forth in subsection (b), a court may set aside an arbitration award when the award manifestly disregards applicable law. Although the MUAA provides specific grounds for vacatur, WSC contends that the statute was never intended to eliminate the common-law grounds of vacatur, chiefly manifest disregard of the law. Trio's response to this contention is sparse. Rather than addressing WSC's contention that the MUAA did not abrogate common-law vacatur grounds, Trio asserts that WSC has attempted to undo the Arbitrator's decision merely because it disagrees with the award. We begin by assessing whether the MUAA abrogates or otherwise eliminates the common-law vacatur grounds of "manifest disregard of applicable law."

         Manifest Disregard--Maryland ...


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